Stretchline Intellectual Properties Ltd. v. H & M Hennes & Mauritz LP
Filing
88
MEMORANDUM OPINION & ORDER granting 79 Motion to Voluntarily Dismiss. The Court GRANTS Stretchline's Motion to Voluntarily Dismiss WITH PREJUDICE.It shall pay H&M's costs. H&M shall submit its Statement of Costs within thirty (30) days of the date of this Order. Stretchline may respond to the Statement of Costs within ten (10) days of the date it is filed. Accordingly, if it does not wish to pay H&M's costs, Stretchline is granted ten (10) days from the date of this Order to withdraw its Motion.(See Order and Footnotes for specifics) Signed by District Judge Raymond A. Jackson on 2/24/2015. (bgra)
FILED
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Norfolk Division
FEB 2 4 2015
Ci-EKK, SI STRICT COURT
STRETCHLINE
-
INTELLECTUAL PROPERTIES LTD.,
0: K. VA
Plaintiff,
CIVIL ACTION NO. 2:10-cv-371
v.
H&M HENNES & MAURITZ LP,
Defendant.
MEMORANDUM OPINION & ORDER
This matter comes before the Court on a Motion to Voluntarily Dismiss from Plaintiff
Strclchline Intellectual Properties LTD. ("'Stretchlinc"). The Court has reviewed the pleadings in
this matter. A hearing will not aid in the disposition and moreover, Stretchline has waived oral
argument. Having considered the pleadings, Plaintiffs Motion to Voluntarily Dismiss is
GRANTED WITH PREJUDICE.
I.
FACTUAL & PROCEDURAL HISTORY
This matter stems from Strctchlinc's claims against Defendant H&M Hennes & Mauritz
LP ("H&M") alleging that Defendant has infringed its patent, in violation of 35 U.S.C. § 271(a)
- (c), by making, using, selling, or offering to sell in, or importing into, the United States,
including in this district, one or more products claimed in one or more claims of the '578 patent
or made by a process claimed in one or more claims of the '578 patent, including without
limitation, H&M "Beauty" Underwire Lace brassiere and H&M "Beauty" Underwire Light
Padding brassiere.
This suit originally arose in July 30, 2010 with the filing of Strctchlinc's Complaint. On
February 9. 2011. H&M filed its Answer. ECF No. 12. On June 17. 2011. the Court received the
Joint Notice of Settlement from the Parties. ECF No. 32. On July 11. 2011. nearly one year after
the filing of this case, the Court entered the Stipulation and Order of Voluntary Dismissal and
this case was stricken from its docket. ECF No. 33. On April 4. 2013, nearly two years later,
Plaintifffiled a Motion to Enforce Settlement Agreement. ECF No. 34. On June 10. 2013. this
Court held a hearing and explained that Strctchlinc's Motion to Enforcement Settlement was
premature because Stretchline had not "adequately pursued the requirements of [its] own
agreement" before filing its motion. Mot. to Enforce Settlement Hr'g Tr. 3:4-7, June 10, 2013.
ECF No. 48. Specifically, in the two years since reaching a settlement agreement. Stretchline had
failed to turn over the accused products to II&M for examination. The Court ordered Stretchline
to produce the accused products within 30 days and I I&M to examine them within 10 days of
receipt. Mot. to Enforce Settlement Hr'g Tr. 8:11-19. Thereafter, settlement negotiations broke
clown and the case proceeded toward trial. On December 2, 2014, Stretchline filed a Motion to
Compel Production of Sales and Revenue Documents for the accused products. ECF No. 71.
On December 11, 2014, a Markman Hearing was held, at the start of which H&M announced
that it would accept Stretchline's contention that "no construction is necessary" for three terms:
"tubular fabric." "support yarn," and "elastomeric yarn." With respect to the fourth term,
"fusible yarn," H&M accepted Stretchline's meaning, "yarn that can be melted at a
predetermined temperature and cooled to adhere to other yarn."
On January 26, 2015, Stretchline filed the instant Motion to Voluntarily Dismiss without
prejudice pursuant to Rule 41(a)(2). with supporting memorandum. ECF No. 79 & 80. On
February 9, 2015, H&M filed its Response in Opposition (ECF No. 81) and requested thai
Stretchline's motion be denied and the case permitted to move forward. On February 12, 2015.
1Fully briefed, action on that motion depends on whether Stretchline decides to move forward with its case
after the filing ofthis Order.
Stretchline filed its Reply (ECF No. 83) and requested that the Court grant its motion and
dismiss the action (1) without prejudice on the condition that Stretchline pays H&M's costs if it
re-files, or (2) with prejudice on the condition each party bears its own costs. The Court granted
1I&M's request to file a Sur-Reply. In its Sur-Reply. 1I&M requests the Court deny the motion
or grant a dismissal with prejudice on the condition Stretchline pays H&M's costs and H&M is
allowed to file a motion for attorneys' fees. ECF No. 87.
II.
A.
LEGAL STANDARDS
Rule 41(a)(2) Dismissal
Because dismissal with or without prejudice is a question of procedure, the Federal
Circuit applies the law of the regional circuit. Anderson Corp. v. Pel/a Corp.. 300 F. App'x 893.
900 (Fed. Cir. 2008) (citing Intel Corp. & Del! Inc. v. Commonwealth Scientific & Indus.
Research Org., 455 F.3d 1364. 1369 (Fed. Cir. 2006)). The United States Court of Appeals for
the Fourth Circuit ("Fourth Circuit") has stated that the denial of a motion to dismiss without
prejudice is reviewed for abuse of discretion. Filet Bros.. Inc.. v. U.S. Fidelity & Guar. Co.. 275
F.3d 384,388 (4th Cir. 2001).
The primary focus of a Rule 41 (a)(2) motion is protecting the interests of the defendant.
Davis v. USXCorp., 819 F.2d 1270. 1273 (4th Cir. 1987). Although the decision is discretionary,
[he "purpose of Rule 41(a)(2) is freely to allow voluntary dismissals unless the parties will be
unfairly prejudiced." Bridge Oil. Ltd. v. Green Pacific A/S, 321 F. App'x 244, 245 (4th Cir.
2008) (per curiam) (quoting Davis, 819 F.2d at 1273). Yet, the prejudice that may accrue to the
defendant must be substantial. Andes. 788 F.2d 1033. 1036 (4th Cir. 1986) (citing Kenrose Mfg.
Co. v. Fred Whilaker Co.. 512 F.2d 890, 895 (4th Cir. 1972)). "[A|bscnt plain legal prejudice to
the defendant." a Rule 41(a)(2) motion should be granted. Fllett Bros., 275 F.3d at 388.
As the Fourth Circuit has stated, "[its]jurisprudence on .. . what constitutes sufficient
prejudice ... isnot free from ambiguity." Howard v. Innova Health Care Servs., 302 F. App'x
166, 179 (4th Cir. 2008). There is. however, guidance on what will not qualify as prejudice of the
degree that warrants denial of a Rule 41(a)(2) motion: the prospect of a subsequent lawsuit. Ellen
Bros.. 275 F.3d at 388-89, the possibility that the plaintiffwill gain a tactical advantage over the
defendant in future litigation, Davis, 819 F.2d at 1275. or the mere filing of a summary judgment
motion, Andes, 788 F.2d at 1036 n. 4. Furthermore, extensive discovery is not prejudicial where
the evidence discovered may be used in a subsequent action. Davis, 819 F.2d at 1276 (citing
Tyco Labs. Inc. v. Koppers Co., 627 F.2d 54. 56 (7th Cir. 1980).
In ruling on a Rule 41(a)(2) motion, a court should consider: (1) the opposing parly's
effort and expense in preparing for trial; (2) excessive delay or lack of diligence on the part of
the movant: (3) insufficient explanation of the need for a dismissal; and (4) the present stage of
the litigation, i.e., whether a dispositive motion is pending. Ilohbs v. Kroger Co., 175 F.3d 1014.
1014 (4th Cir. 1999) (unpublished) (per curiam) (citing Phillips USA. Inc. v. All-jlex USA. Inc..
11 F.3d 354. 358 (10th Cir. 1996); Paulucci v. City oJDu/uth. 826 F.2d 780, 783 (8th Cir. 1987)).
The Court does not need to resolve each factor in favor of the moving party for dismissal without
prejudice to be appropriate. By the same token, it need not resolve each factor in lavor of the
opposing party for denial of the motion to be proper. Ohlander v. Larson. 114 F.3d 1531. 1537
(10th Cir. 1997). Furthermore, this four-factor inquiry is not exclusive. Depending on the
circumstances of the case, the court should consider any other relevant factors. Ilohbs, 175 F.3d
at 1014 (citing Ohlander, 114 F.3d at 1537). Whether the dismissal without prejudice "would
result in a waste ofjudicial time and effort," is relevant to the inquiry. Hamm v. Rhone-Pou/enc
Rarer Pharm.. Inc.. 187 F.3d 941, 950 (8th Cir. 1999).
Rule 41(a)(2) dismissals are without prejudice "[u|nlcss otherwise specified in the
[district court's] order." Fed. R. Civ. P. 41(a)(2). Thus, the court is not bound to grant a
plaintiffs request for dismissal without prejudice. The court's authority to dismiss with prejudice
is implied in the language of the rule. Choice Hotels Inl 7, Inc. v. Goodwin & Boone, 11 F.3d
469, 471 (4th Cir. 1993). Notwithstanding its authority, when a plaintiff files a Rule 41(a)(2)
motion for voluntary dismissal without prejudice and the court intends to dismiss with prejudice,
the court may not do so unless it first provides the plaintiff with the minimum requirements of
fundamental fairness, to wit: (1) advance notice of its inclination toward such dismissal. (2) the
opportunity to respond to defense counsel's request for that result; and (3) the option of allowing
its case to proceed to judgment on the merits. Grades v. Gregory. 37 F.3d 1493. 1493 (4th Cir.
1994) (unpublished) (per curiam). See also .Andes, 788 F.2d at 1037 ("It upsets notions of
fundamental fairness for a court, in response to a party's request for dismissal without prejudice,
to grant the request by dismissing with prejudice, while failing to give the moving party notice of
its inclination to impose this extreme remedy. [A pjlaintiff deserve[s] such notice and an
opportunity to proceed with the litigation of this case."); United States v. One Tract ofReal
Prop., 95 F.3d 422, 425-26 (6th Cir. 1996) (adopting the approach of its sister circuits, including
the Fourth Circuit's decision in Andes): Jones v. Hill. 73 F.3d 357. 357 (4th Cir. 1995)
(unpublished) (per curiam) ("[T]hc plaintiff is entitled to notice of the district court's intention to
dismiss with prejudice so thai he may consider the options available to him."); Jamarillo v.
Burkhart, 59 F.3d 78. 79 (8th Cir. 1995) (plaintiff entitled to notice of court's intent to dismiss
with prejudice and the chance to withdraw the request and proceed to litigation).
Rule 41(a)(2) authorizes, but does not require, a district court to impose conditions. Fed.
R. Civ. P. 41(a)(2) (dismissal granted "upon such terms and conditions as the court deems
5
proper"); seealso Flalh v. Bombardier, Inc., 217 F.3d 838 n.7 (4th Cir. 2000) (unpublished) (per
curiam).
B.
Costs & Attorneys' Fees
1.
Costs
The Federal Circuit engages in a bifurcated inquiry of a district court's decision regarding
prevailing party costs under Rule 54 of the Federal Rules of Civil Procedure. Power Mosfet
Technologies. LLC. v. Siemens AG, 378 F.3d 1396, 1407 (Fed. Cir. 2004). First, Federal Circuit
law determines whether a party is "prevailing" for puiposes of costs under Rule 54. Id. Second,
the district court's decision on the award of costs is reviewed under the law of the regional
circuit. Id. (citing Manildra Milling Corp. v. Ogilvie Mills, 76 F.3d 1178.1180-83 (Fed. Cir.
1996)).
Under the law of the Federal Circuit, a dismissal of a claim with prejudice is a judgment
on the merits. Highway Equipment Co., Inc., v. FECO. Ltd., 469 F.3d 1027, 1035 (Fed. Cir.
2006) (citing Power. 378 F.3d at 1416). Accordingly, a party which has all claims against it
dismissed with prejudice, is a prevailing party. Id. See also Manildra Milling, 76 F.3d at 1182
(If "one party wins completely on every claim at issue, determining which party has prevailed is
a straightforward task.").
The Fourth Circuit has held that Rule 54 "gives rise to a presumption in favor of an
award of costs to the prevailing party" such that "in the ordinary course, a prevailing party is
entitled to an award of costs." Teague v. Bakker, 35 F.3d 978, 996 (4th Cir. 1994). The court
must justify any departure from this general rule by "articulating some good reason for doing
so." Id. (quoting Oak Hall Cap & Gown Co. v. Old Dominion Freight Line. Inc., 899 F.2d 291.
296 (4th Cir. 1990)).
2.
Attorneys' Fees
a.
Title 35 U.S.C. § 285
The prevailing party issue under Title 35 U.S.C. § 285 and Rule 54 are treated similarly.
Highway Equip., 469 F.3d atl035. A fee claim under § 285 requires a finding that there has been
a "judicially sanctioned change in the legal relationship of the parties." Id. at 1034 (quoting
Buckhannon Bd. & Care Home, Inc., v. IV. Va. Dep't ofHealth & Human Res.. 532 U.S. 598.
605 (2001)). As provided in § 285. a district court "in exceptional cases may award reasonable
attorney's fees to the prevailing party." Id. at 1033.
The Supreme Court recently set aside the Federal Circuit's standard to determine whether
a case qualifies for "exceptional" treatment under § 285. Until recently, Federal Circuit
precedent required the defendant to show by "clear and convincing evidence." Brooks Furniture
Mfg., Inc. v. Dutailier hit 7, Inc., 393 F.3d 1378, 1382, (Fed. Cir. 2006), abrogated by Octane
Fitness, LLC v. Icon Health & Fitness, Inc.,
U.S.
, 134 S.Ct. 1749 (2014), that "(1) the
litigation [was] brought in subjective bad faith, and (2) the litigation [was] objectively baseless."
Id. at 1382. The district court's determination was subject to de novo review, Highmark. Inc. v.
Allcare Health Health Mgmt. Sys., Inc., 687 F.3d 1300, 1309 (Fed. Cir. 2012) (vacatedand
remanded. Highmark Inc. v. Allcare Health Mgmt. Sys.. Inc.,
U.S.
, 134 S.Ct. 1744.
1749 (2014)). Determining that the Federal Circuit's approach was "rigid and mechanical."
Octane. 134 S.Ct. at 1754. the Supreme Court held that an "'exceptional' case is simply one that
stands out from others with respect to the substantive strength of a party's litigating position
(considering both the governing law and the facts of the case) or the unreasonable manner in
which the case was litigated." Id. at 1756. The exceptional-case determination is a "casc-by-casc
exercise of [the district court's] discretion, considering the totality of the circumstances." Id. All
aspects of a district court's § 285 determination are now reviewed under an abuse of discretion
standard. Highmark, 134 S.Ct. at 1749.
The Supreme Court highlighted its decision in Fogerty v. Fantasy, Inc., which concerned
the "comparable context of the Copyright Act." Octane. 134 S.Ct. at 1756. In Fogerty. the
Supreme Court stated courts should consider a "nonexclusive" list of factors such as
"frivolousness, motivation, objective unreasonableness (both in the factual and legal components
of the case) and the need in particular circumstances to advance considerations of compensation
and deterrence." Id. at n. 6 (quoting Fogerty v. Fantasy, Inc.. 510 U.S. 517, 534 n.l9). Under the
new standard, "a district court may award fees in the rare case in which a party's unreasonable
conduct—while not necessarily independently sanctionable—is nonetheless so 'exceptional' as
to justify an award of fees." Id. at 1756-57. Further, "a case presenting either subjective bad faith
or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant
a fee award." Id. at 1757.
The Federal Circuit has concluded that "a district court's finding of widespread
misconduct among [both] parlies... is a more than adequate justification for an exercise of
discretion denying sanctions." Power, 378 F.3d at 1415 (finding no abuse of discretion in denial
of sanctions where all parties were credited with some share of the bad behavior).
b.
Rule 11 of the Federal Rules of Civil Procedure
Under Rule 11, attorneys must "certify that they have conducted a reasonable inquiry and
have determined that any papers filed with the court are well-grounded in fact, legally tenable,
and not interposed for any improper purpose." Cooler & Gel! v. Ilatmar.x Corp.. 496 U.S. 384.
393 (1990) (internal quotation marks omitted). A district court's Rule 11 ruling is reviewed for
abuse of discretion. Id. at 405. See also Morris v. Wachovia Sec, Inc., 448 F.3d 268, 277 (4th
Cir. 2006).
c.
28 U.S.C. § 1927
Pursuant to 28 U.S.C. § 1927, the Court may award attorneys' fees for conduct that
"unreasonably and vexatiously" multiplies the proceedings in a case." 28 U.S.C. § 1927. The
Court may require "the excess costs, expenses, and attorney' fees reasonably incurred because of
such conduct" be satisfied personally. Id. The Fourth Circuit staled that bad faith is a
precondition to the imposition of sanctions under § 1927. E.E.O.C. v. Great Steaks. Inc., 667
F.3d 510,522 (4th Cir. 2012).
d.
Court's Inherent Power
Courts possess inherent powers to sanction litigation misconduct. Samsung Elecs. Co.,
Ltd. v. Rambus, Inc.. 523 F.3d 1374. 1380 (Fed. Cir. 2008). If a party has "acted in bad faith,
vexatiously. wantonly, or for oppressive reasons," a court may assess attorneys' fees as an
exercise of its inherent power. Id. (quoting Chambers v. NASCO, Inc.. 501 U.S. 32. 45 (1991)).
Notwithstanding, a court should exercise restraint in invoking its inherent power, and only do so
where "neither statute nor the [Federal Rules of Civil Procedure] are up to the task." Chambers,
501 U.S. at 48-49.
III.
A.
DISCUSSION
Rule 41(a)(2) Dismissal With Prejudice
1.
H&M's effort and expense in preparing for trial
Evidenced by its failure to produce sales documents or "a single witness for deposition,"
Stretchline argues that H&M has not expended significant effort in preparing for trial. In
response, H&M contends thai it has expended "great effort" on electronic discovery and
document production. Indeed, H&M states that it produced more than 26,000 pages of
documents to Stretchline between June 2014 and January 2015, many of which needed to be
translated at an additional cost. Furthermore, before the insiant motion was filed. H&M answered
the complaint as well as prepared and served initial disclosures, interrogatories, document
requests, requests for admission, invalidity contentions, and an expert report. Nonetheless, the
Court is left to wonder how much of the discovery done to date has been of use in the parallel
proceeding occurring in the United Kingdom. Furthermore. II&M has not asserted thai the
discovery completed thus far cannot be used in a subsequent proceeding. Thus, on balance, the
Court finds the first factor docs not tilt conclusively in H&M's favor.
2.
Excessive delay or lack of diligence on the part of Stretchline
While H&M has submitted evidence of delay on Stretchline's part, the Court cannot
conclude such delay was excessive. And although II&M argues that Stretchline has "refusfed] to
make [its] witnesses available" for deposition, the Court notes that H&M failed to adequately
address Stretchline's contention that H&M has yet to produce any witnesses for deposition. The
fact that only one deposition has taken place over the past 22 months, and that was the deposition
of a Stretchline witness, does not weigh in H&M's favor. Indeed, there is no evidence that
Stretchline's prolonging tactics have outstripped H&M's. Accordingly, the Court finds that both
Parties have engaged in dilatory litigation tactics that have unnecessarily impeded the progress of
this case. For this reason, the second factor weighs in neither Party's favor.
3.
Insufficient explanation by Stretchline of the need for a dismissal
The Court does not find Strctchlinc's explanation sufficient. Stretchline has submitted
conflicting reasons for its Motion. On the one hand, it states that it is seeking dismissal because
of II&M's failure to participate in good faith in this Court and because it is more cost-effective
10
to devote its resources to litigation occurring across the pond. PL's Mem. in Support 2. ECF No.
80. On the other hand, it contends that its motion is based on H&M's failure to participate in
litigation, coupled with its revelation that the total number of H&M products with the alleged
infringing components is de minimis. PL's Reply 1. ECF No. 83. Nowhere docs II&M mention
the cost-saving benefit of its United Kingdom litigation.
H&M also argues that Stretchline completely ignores H&M's allegations of knowledge
of invalidating prior art. Though the Court notes that allegedly invalidating prior art has been
considered as a proper reason for a Rule 41(a)(2) dismissal without prejudice, such determination
has been made where the plaintiff granted the defendant a covenant not to sue. See Lowell Mfg.
Co. v. Atlas Sound, LP., No. 4:10-cv-l 152, 2011 WL 2693479, at *2 (E.D. Mo. July II, 2011)
(plaintiff filed Rule 41(a)(2) motion after investigating defendant's prior art allegations). Such is
not the case here. Moreover. H&M can only speculate that the alleged prior art revelation is a
motivating factor for Stretchline's motion. I I&M has not filed a motion based on its alleged
discovery. Without credible supporting evidence, H&M cannot receive the benefit of this
allegation.
However, based on the lack of consistency in Stretchline's explanation for its Rule
41(a)(2) motion the third factor weighs in H&M's favor.
4.
Present stage of the litigation
The present stage of litigation is an important consideration because "the length of time
which an action has been pending goes to the extent which a defendant will be prejudiced by a
dismissal without prejudice." MBRO Capital, LLC v. Siolzar, No. 3:09-cv-1688. 201 1 WL 65913
*3 (D. Conn. Jan. 5, 2011). Nearly two years after reaching a settlement, this case reappeared on
the Court's docket on April 4, 2013, with Plaintiffs Motion to Enforce Settlement Agreement.
11
Since then, the Parties have conducted a Rule 26(f) conference, the Court has conducted its
Markman Hearing, and regardless of the number of depositions taken by either party, extensive
discovery has been taken and discovery ends in two weeks. Furthermore, trial is less than three
months away. After nearly I'we years of this back-and-forth. start-and-stop litigation, the Court is
reluctant to allow Stretchline to push the "pause" button so that it may take a third bite at the
apple whenever it so chooses. The Court finds H&M would be substantially prejudiced if
Stretchlinc were granted a dismissal without prejudice at this late stage of the litigation. See id.
("Typically, when a Rule 41(a)(2) motion for voluntary dismissal without prejudice is denied, it
is because the case has been ongoing for years, significant lime and resources have been invested
such that [the defendant] will be prejudiced by dismissal, and/or the case is at or near trial.").
This factor would weigh in favor of a dismissal only with prejudice.
5.
Other Factors
The Court also considers the waste ofjudicial time and resources. It is the Court's
responsibility to ensure the "just, speedy, and inexpensive" administration of its docket. Fed. R.
Civ. P. 1. See also Teck Gen. P 'ship v. Crown Cent. Petroleum Corp., 28 F. Supp. 2d 989, 993
(E.D. Va. 1998). Stretchline filed its case in June 2010. settled it in July 2011. resurrected it in
April 2013. and in January 2015, asked this Court to essentially "put it on ice" with a dismissal
without prejudice. A request for voluntary dismissal without prejudice under these circumstances
runs counter to the goals of Rule 1. Moreover, the Court expressed its concern that judicial
resources were being wasted when this case was restored to the Court's docket because
Stretchline filed its Motion to Enforce Settlement without first producing the alleged infringing
product for H&M's inspection, as required by the settlement agreement. Those concerns have
been renewed by Plaintiffs motion.
12
For the foregoing reasons, the Court will grant Strctchlinc's Motion for Voluntary
Dismissal with prejudice.
B.
Costs & Attorneys' Fees
1.
Costs
As set forth above, under Federal Circuit law, a dismissal with prejudice operates as an
adjudication on the merits and the prevailing party is the party against whom the claims are
dismissed. In the Fourth Circuit, prevailing parties are entitled to costs as a matter of course.
Therefore, a dismissal with prejudice necessarily entitles H&M to costs, absent a good reason to
the contrary. Stretchline has offered no such reason and it docs not appear to the Court that one
exists.
2.
Attorneys' Fees
H&M argues sanctions arc appropriate under Rule 11 and, to address bad faith conduct
by Stretchline, pursuant to 28 U.S.C. § 1927 and the Court's inherent authority to impose
sanctions that offend the legal process. Dcf.'s Mem. in Resp. in Opp'n. 18. ECF No. 81. H&M
further argues that attorneys' fees are appropriate because this is an "exceptional" case under 35
U.S.C. § 285. Def. Sur-Reply 3. ECF No. 87. The Court disagrees and declines to award
attorneys' fees.
a.
Title 35 U.S.C. § 285
Even under the Supreme Court's newly relaxed standard. I I&M has not established that
this case warrants exceptional designation." Though exceptional-case designation applies where
As an initial matter, it is not clear to the Court that a Rule 41(a)(2) dismissal with prejudice is sufficient on its own
to conveyprevailing party status upon 1I&M for purposes ofattorneys 'fees under 35 U.S.C. § 285. The Federal
Circuit has held that a dismissal with prejudice granted pursuant to the district court's discretion under Rule 41(a)(2)
"has the necessaryjudicial imprimatur to constitute a judicially sanctioned change in the legal relationship of the
parties, such that the district court [may] properly . . . entertain [a defendant's) fee claim under 35 U.S.C. § 285"
when that dismissal is accompanied by a filed covenant not to sue. Highway Equip.. 469 F.3d at 1035-36 (stating
13
a patentee engaged in inequitable conduct by withholding prior art. Bruno Indep. LivingAids,
Inc. v. Acron Mobility Servs., Ltd., 394 F.3d 1348 (Fed. Cir. 2005), no such finding can be made
in this case.
As the Federal Circuit has stated, "[pjatent applicants owe a 'duty of candor and good
faith' to the PTO. Id. at 1351 (quoting 37 C.F.R. § 1.56(a) (2004)). In order "[t]o prove
inequitable conduct in the prosecution of a patent, [the defendant] must have provided evidence
of affirmative misrepresentations of a material fact, failure to disclose material information, or
submission of false material information, coupled with an intent to deceive." Dayco Prods., Inc.
v. Total Containment. Inc.. 329 F.3d 1358. 1362 (Fed. Cir. 2003) (quoting Purdue Pharma LP.
v. Boehringer Ingelheim GMBH, 237 F.3d 1359. 1366 (Fed.Cir.2001)). Intent and materiality,
which are questions of fact that must be proven by clear and convincing evidence, id., must be
weighed "to determine whether the equities warrant a conclusion that inequitable conduct
occurred." Bruno. 394 F.3d at 1351 (quoting Molins PLC v. Textron. Inc.. 48 F.3d 1172. 1178
(Fed. Cir. 1995).
H&M states that it uncovered two prior art documents created and used by Switzerlandbased EMS Chcmie, a third party manufacturer and vendor of fusible yarn. It alleges that
Stretchline "obviously used" these documents in connection with its patent application and failed
to disclose them to the U.S. PTO. Apart from bare allegations, however. ll&M has not offered to
this Court any evidence at all, circumstantial or otherwise, that Stretchline possessed actual
knowledge of the alleged prior art and failed to disclose them either to the U.S. PTO during
patent prosecution or to this Court during the course of litigation. Although H&M makes much
that the defendant's "prevailing party status is not predicated on whether [the plaintiff] filed a Rule 41(a)(2) motion
to dismiss with prejudice at the outset but is sufficiently based on its having filed a covenant not to sue with the
court to end the litigation, resulting in a dismissal with prejudice").
14
of Stretchline's silence as to these allegations, Stretchline's decision to "remain silent" is an
insufficient foundation for a finding of inequitable conduct. Failing to otherwise make the case
for exceptional-case treatment, the record before the Court fails to establish a basis for attorneys'
fees under § 285.
b.
Other Grounds for Sanctions
As stated above. H&M bases its request for sanctions on Stretchline's alleged failure to
disclose prior art documents. Because H&M has not substantiated its allegations with any proof,
there is no basis for sanctions under Rule 11. As I l&M has not established Stretchline engaged in
bad faith conduct, sanctions cannot be imposed under 28 U.S.C. § 1927. Similarly, there is no
basis for an exercise of the Court's inherent power.
IV.
CONCLUSION
The Court GRANTS Stretchline's Motion to Voluntarily Dismiss WITH PREJUDICE.
It shall pay H&M's costs. H&M shall submit its Statement of Costs within thirty (30) days of the
date of this Order. Stretchline may respond to the Statement of Costs within ten (10) days of the
date it is filed.
Given that governing law prevents Stretchline from obtaining a dismissal with prejudice
without costs, which is the only condition on which it was amenable to a dismissal with
prejudice, fundamental fairness demands that Stretchline have the opportunity to withdraw its
Motion and proceed to a decision on the merits. Although the Court would have communicated
its intentions at a hearing on the matter. Plaintiff waived oral argument on its motion. See PL's
Mem in Support 8; PL's Reply 7. Accordingly, if it docs not wish to pay H&M's costs,
Stretchlinc is granted ten (10) days from the date of this Order to withdraw its Motion.
The Clerk is DIRECTED to send a copy of this Memorandum Opinion and Order to
counsel for the Parties.
IT IS SO ORDERED.
Norfolk, Virginia
February^, 2015
'
Raymond A. Jackson
United atates District Jud''e
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